though i didn't get the idea here, i found this short blog piece showing the basic trade and how the strikes are selected.
http://theoptionguru.com/blog/2011/04/amzn-spread-for-earnings-using-tos-mmm-feature/
i tried a few of these last week, on AAPL, AMZN, and FB, but with the modification of moving in a couple strikes, so the distance between the two butterflies was the same as the straddle cost, rather than two times that range. i was expecting the measured move priced in by the options, then a retrace before expiry. this only happened with AAPL, as there were a few days after the earnings move before weekly expiry. a single success, but 5 failures, while i'm shooting for 50% on them.
with FB and AMZN, being closer to expiry when they announced, flies should have been placed centered at the full expected move, with FB moving from $27 -> $24 and AMZN from $220 to $237. a butterfly centered at the measured market move away from thepre-earnings closing price, $3 in FB and $16 in AMZN, would have been nice, nice winners, more than making up for the losing fly on the other side, and the commish.
so this time around, i have picked two stocks giving out earnings, with history of wild moves, going into thur. and friday with their announcements. so, the only decision is when to jump into the weekly flies between now and earnings, and how deep to go.
also, do i want to add any directional component to each of these 'story stocks', as each is at or near a pivotal price, as reflected by the 10%-20% implied moves priced in by the options guys much smarter and well funded than you or me, or, do i simply want to take what the market is offering, a move of certain length, in either direction, regardless of where i 'think' things could go.
